President signs bill to protect housing allowance for clergy
May 21, 2002
By Tom Strode

WASHINGTON (BP)--President Bush has signed into law a bill designed to protect a longstanding housing tax exemption for ordained ministers and other clergy.

Bush signed the Clergy Housing Allowance Clarification Act May 20 after the legislation sped through Congress in the face of a judicial challenge to the exemption's constitutionality. The unusually rapid legislative action came after a panel of the U.S. Ninth Circuit Court of Appeals announced in March it was reviewing the constitutionality of the allowance.

Enactment of the measure came less than six weeks after the bill was introduced. The measure passed both the Senate and House of Representatives without opposition. The House adopted it with a 408-0 vote April 16, while the Senate agreed by unanimous consent to the same bill May 2.

Rick Warren, pastor of Saddleback Valley Community Church, a large and highly influential Southern Baptist church in Lake Forest, Calif., sued the IRS after an agent assessed his home's value at far less than its worth and thereby reduced the housing allowance, he said. The IRS penalized Warren for the years 1993-95 for the difference between the IRS valuation and the exemption from taxable income he claimed.

"Though it rarely ever happens, it is encouraging when elements of all three branches of government are in total agreement," Warren said in a prepared statement. "The Tax Court said we were right. The Congress and Senate unanimously stood behind us. The Department of Justice has written a Brief defending our position, and has asked us to join them in signing a petition to withdraw the IRS's original appeal. And now with the President signing the bill into law, even he and his staff have defended our position. I think this has been a fight well worth fighting and winning for clergy across the country. I'm glad God let me play a part in it."

Warren thanked the leadership of the Southern Baptist Convention Executive Committee, the North American Mission Board, Focus on the Family, the Evangelical Council for Financial Accountability and denominational leaders across the country for their support.

Since 1921, pastors and other religious leaders have been able to deduct from federal taxes a portion of their income for housing. The new law is intended to preserve the exemption by amending the Internal Revenue Code to make clear the allowance should not exceed the "fair rental value" of a house, including furnishings, accessories and utilities.

While the bill would not settle the issue of constitutionality, its supporters believe it will end the Ninth Circuit's threat to the allowance by codifying the "fair rental value" language formerly used by the Internal Revenue Service. The legislation would provide a way for both sides in the Ninth Circuit case to resolve the dispute. It would not prevent a future challenge to the allowance's constitutionality, however.

Lawyers from the Southern Baptist Convention's Executive Committee, Annuity Board and Ethics & Religious Liberty Commission, as well as other religious organizations, have worked for the exemption's preservation.
ERLC President Richard Land said he was "delighted" the president signed the bill.

"This law will significantly increase the legal protections afforded the clergy housing allowance, which is something that needs to be protected from court intrusion," Land said. "I am gratified that the House and Senate moved with such speed to afford this protection when it seemed the Ninth Circuit Court of Appeals was looking with a menacing eye toward this very important allowance for clergy of all faiths."

Rep. Jim Ramstad, R.-Minn., who introduced the bill April 10, said in a written statement, "With an overwhelming vote in Congress and the president's signature, America's clergy and their congregations will be protected from this destructive tax increase."

The bill would add the following language to the tax code: "And to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities." The amendment would not apply to taxable years before 2001. Amended tax returns could be filed without penalty or interest under the bill.

Abolition of the allowance would have a highly negative impact on pastors and other clergy, as well as churches and other religious bodies. It has been estimated loss of the allowance would result in clergy paying an additional $2.3 billion in taxes during the next five years. It also would be particularly damaging to small congregations, which often have been able to employ a full-time pastor because of the housing benefit.

Congress reacted when the Ninth Circuit signaled a likelihood it would strike down the housing allowance. After the court, which is located in San Francisco, received the case as an appeal by the IRS, a divided three-judge panel announced it would consider whether it should weigh the exemption's constitutionality and, if so, whether the allowance would pass the test under the First Amendment's ban on government establishment of religion.

The panel appointed Erwin Chemerinsky, a professor at the University of Southern California Law School, to write a brief on those issues for the court. The panel requested both parties in the case to submit briefs as well. The panel set May deadlines for the briefs. Neither party, however, challenged the exemption's constitutionality.

In interviews, Chemerinsky said he believes the allowance is invalid.

"Government can't subsidize religion," he told the Los Angeles Times. "Religion is treated differently by the Constitution. If the government wants to subsidize journalists because it feels they aren't paid enough, I don't have any problem with that. But if they want to do the same thing with regards to religion, they can't."

The potential crisis for pastors and churches began as a challenge of the IRS' application of the exemption in a case titled Warren vs. Commissioner of Internal Revenue.

In a letter to readers of his Web site, www.pastors.com, Warren said his wife, Kay, and he "decided to challenge the vagueness of the revenue ruling that allowed agents to arbitrarily assess the value of a parsonage without any objective standard." He is not opposed to the "fair market rental value" clause IRS uses if the "IRS will define a 'fair' written, objective standard to be used by all IRS agents," said Warren, who wrote the book "Purpose Driven Church."

In May 2000, a U.S. Tax Court in California decided in Warren's favor by a 14-3 vote. The court ruled the exemption in the code is limited "to the amount used to provide a home, not the fair market rental value of the home." The IRS appealed the ruling to the Ninth Circuit.

Warren and his staff promoted passage of the bill. He announced May 17 at a "Purpose-driven Church" seminar at Saddleback the president was to sign the bill May 20. The audience of 3,800 pastors from 87 denominations broke into loud applause.
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